Shares of AppLovin (NASDAQ: APP), an online gaming and advertising company, soared higher this week after it reported third-quarter financial results that blew past Wall Street’s consensus estimates.
AppLovin’s shares jumped 45% this week, as of this writing, adding to the company’s stunning gains over the past year of more than 500%.
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AppLovin’s sales popped 39% in the quarter to $1.2 billion, which outpaced analysts’ consensus estimate of $1.13 billion. Similarly, the company’s diluted earnings per share of $1.25 easily surpassed Wall Street’s consensus estimate of $0.92 per share.
The biggest driver of AppLovin’s growth came from its artificial intelligence (AI)-powered advertising engine, called Axon, that provides targeted advertising in gaming apps. Management said on AppLovin’s earnings call that a combination of self-learning and updates from its engineering team is advancing Axon’s targeting capabilities and bringing big steps forward, noting that the company “saw one of those step changes, with meaningful growth driven by advancements” to Axon in the quarter.
AppLovin also impressed investors by issuing strong guidance. The company said fourth-quarter sales will be in the range between $1.24 billion and $1.26 billion, which represents 31% growth at the midpoint.
AppLovin’s huge draw among investors comes in part from its ability to generate profits. Net income jumped 300% in the quarter to $434 million and its adjusted profit margin is an impressive 78%.
With AppLovin significantly boosting its sales and earnings, and management issuing impressive guidance, it’s not surprising to see its stock skyrocket this week.
More importantly, AppLovin’s profitability and its ability to tap into the ultra-popular AI trend are giving investors a compelling investment opportunity.
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